Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

CIPS, Not The Petrodollar Is Key

Stock-Markets / Financial Markets 2016 Jan 20, 2016 - 04:56 PM GMT

By: Raymond_Matison

Stock-Markets

With oil prices having declined to record lows of the last several decades and financial markets having traded down dramatically, there is increased interest in identifying the next possible black swan event.

Over the last several years, there have been scores of articles forecasting a fall of the Petrodollar as the key confirming event for the long-expected decline in value of the United States dollar currency and the demise of its global hegemony.  These reports are correct in that unraveling the Petrodollar will precipitate a sudden decline in global demand for the dollar, with a concomitant decline in the value of the dollar in global currency markets. 


However, waiting for a specific black swan event is similar to purchasing lottery tickets. Someone will win the pot eventually, but the winning ticket will likely contain numbers that you neither chose nor purchased.  So it is likely that the event which will start a new and persistent decrease for the global demand of the dollar, and a more precipitous decline in its value will in fact come from a less recognized or acknowledged event.  Specifically, this event of the dollar’s decline in value may not come from the direct unraveling of the Petrodollar, but from some other associated event.  In addition, we can rely on the fact that our government is doing everything it can to perpetuate the Petrodollar’s current status, and with its almost unlimited resources the time for its ultimate unraveling is nearly impossible to predict.

However, I believe that a visible black swan has been swimming in front of us all this time, and that those who have followed international developments have at least subconsciously understood the more likely and visible reason for the eventual unraveling of the U.S. global reserve currency.  This huge pink elephant in our global living room is the effort to finalize into active operation CIPS (China International Payment System) a competing electronic money transfer system to SWIFT (Society of World Interbank Telecommunications).

China has been working on this independent money transfer system for several years (as has Russia), and it has been in a testing phase during 2015 to make sure that it functions properly and dependably.  Indeed, there were expectations that this system might come on-stream in the last quarter of 2015.  Once the seemingly benign announcement is made that this system is an operating every-day reality, the world will start to change noticeably and irreversibly every day.  In other words, whether there is turmoil in the mid-east or not, whether the Petrodollar still rules or not, whether oil flows, or is sold at low prices or not, whether geopolitical conflicts are resolved or not – this new global payments system would still be changing the balance of world power irreversibly day by day.

As this alternative money transfer system gets up and running, some of the global trade now being settled through the SWIFT system would start to be transferred over to CIPS.  Over time, this fact alone would decrease demand for the dollar as the SWIFT system’s transaction volume would decline, and the small initial base of transactions through CIPS would grow.  As more countries determine that this system is reliable, price competitive and reasonably safe from cyber-warfare, many countries would increasingly use CIPS rather than SWIFT.  The U.S. and Europe clearly will continue predominantly to use the SWIFT system, but countries that have reason, imagined or real, to distrust western nations will clearly more frequently use the alternative.

Countries which have been at the wrong end of an IMF or World Bank defaulted loan renegotiation, or countries which have suffered from western sanctions, including exclusion from the SWIFT system for international trade settlement, are going to embrace the CIPS system.  Countries which suspect or believe that foreign country derivative use has manipulated their currency lower in foreign exchange markets causing economic havoc at home will likely avoid dollar transactions, and settle their trade balances through CIPS in other currencies. 

This action will tend to polarize the world into two distinct factions.  As one group of countries utilizes, and increasingly relies on this alternative electronic payments system, the less influence the Petrodollar or the U.S. global reserve currency will wield.  In other words, the Petrodollar can become increasingly irrelevant not because of a singular or series of dramatic geopolitical events but simply as a result an alternative system to SWIFT for settling trade.

As a more broadly encompassing concept, we can assume countries identified frequently by the acronym BRICS (Brazil, Russia, India, China, and South Africa) will predominantly choose to use the CIPS system.  Because of current political developments as related to Iran, and China’s increased activities in South America, the currently more appropriate acronym should be CRISIS (China, Russia, India, South America, Iran, and South Africa). See the article: BRICS? No, CRISIS, posted http://www.marketoracle.co.uk/Article53009.html.   As these countries include a majority of the world’s population, their ultimate influence from the use of CIPS will be significant.

Therefore, it is entirely possible, that instead of the Petrodollar becoming undone because of some decision by OPEC countries or some of their changing leaders, or by Russia or China negotiating some oil trade agreement which unravels the agreement between the U.S. and Saudi Arabia – it is the very visible implementation of this alternative electronic money transfer system that gradually makes for a reduced level of demand for SWIFT and its dominant U.S. dollar currency.  Accordingly, the dollar does not fall precipitously from a singular dramatic event, but recedes in value over a several year period. We must keep in mind, however, that this scenario does not exclude likely dramatic geopolitical actions by the world’s competing countries, each with their own distinct consequences.

It is this increased usage of the CIPS system that would become the Achilles heel of the Petrodollar.  Like it or not, the CIPS system is becoming a reality, just as real as is the recent establishing of the New Development Bank (NDB), and Asian Infrastructure and Investment Bank (AIIB) as competitors or alternates to the IMF and World Bank.  It is just a matter of waiting for the official announcement for CIPS becoming fully operational.  Accordingly, the unilateral global dominance by the U.S. with its “exorbitant currency privilege” in printing unlimited dollars, and lending to developing countries in U.S. dollars - which have to repay such loans more dearly through currency devaluations stemming from questionable foreign exchange market action will be reduced - and over the long term eventually eliminated altogether.

So, perhaps we really don’t need to be searching for the black swan event.  We have a clearly visible swan that has been parading itself in front of us all this time.  Its activities and effect are understandable to all, and they make perfect sense. Countries want to determine their own development and future without dominating or manipulating outside forces.  Choice is usually better than no choice.  Two global money transfer systems are better than one, with competition maintaining the integrity of both.  The SWIFT system worked well for years in context of its intended original role of facilitating global trade, but this alternative system became necessary because of improper manipulation of the first system for geopolitical purposes. 

The world has always had an abundance of people who want to control their own or other countries as well as the lives of countless ordinary citizens.  Their prevalence is neither a surprise nor a black swan.  With the advent of the Internet, or call it the second coming of the printing press which liberated people centuries ago with information through books - people are now able to transmit information instantaneously, making despotism more difficult to hide and easier to combat. There is a great prospect for a much improved and fairer world in the future due to this quicker global sharing and exchange of important ideas, theories and ubiquitous information.  But this evolution will first have to establish competing political and financial systems which provide an ability to avoid or starve current systems which were the best and most innovative systems at the time of their introduction, but which over decades of political polarization have become unfair, coercive and anti-democratic.

The world does not necessarily have to repeat its devastating experience of the 1930-1940’s wherein financial collapse of Germany and the rest of Europe gave way to dictators and a destructive world war. Our improved instantaneous sharing of information means that we are forewarned about the very dangerous path we all are on with money creation and fiat currencies, political fiscal irresponsibility fostering frightening levels of government and consumer debt, destructive cultural policies, and disappearing moral values.  Given our grievous excesses and social misdirection of the last several decades it is clear that we will have to wade through the valley of black swans. Beyond it, however, there is the potential of a renaissance for humanity similar to that experienced after the introduction of the modern printing press – a world of individual liberty, stable money, less corrupted government, and beautiful white swans.

Raymond Matison

Mr. Matison is a U.S. patriot who immigrated to this country in 1949. With a B.S. in engineering physics, an M.S. in Actuarial Science, work in the actuarial field, and as a financial analyst at Legg, Mason Inc., Lehman Brothers, and investment banking at Kidder Peabody, and Merrill Lynch provides a diverse background for experience.  First-hand exposure to fascism, socialism, and communism as well as the completion of a U.S. Army military intelligence course in the 1960’s have inspired a continuing interest in selected topics in science, military, and economics.  He can be e-mailed at rmatison@msn.com
Copyright © 2065 Raymond Matison - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules